Tag Archives: Ben Bernanke

QE3 and the FED: State-contingency and commitment emphasized

Today the Board of Governors of the Federal Reserve System published its decision to start a new round of quantitative easing and a revised announcement concerning the Federal Funds rate. Both legs of this decision have some interesting new aspects that show a central bank continually trying to expand the toolbox of monetary policy, and to be honest about its limitations when acting in an uncertain world. More specifically, the Fed re-introduces purchases of mortgage-backed securities (MBS) at a rate of $40 billion per month. No end date for the purchases is specified—at the contrary, it is emphasized that it will be extended if the economy does not pick up. … Continue reading

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Fed “Fan Charts”

I recently wrote that USA had now entered the club of inflation targeting banks. This occurred when the Federal Reserve in April last year officially started mentioning an explicit inflation target, and also introduced press conferences after its policy meetings. Thereby, central criteria for being considered an inflation targeter were met. Following its January 25 meeting, the Fed initiated immediate publication of projections for the paths for main macroeconomic indicators (they have been available at least since October 2007 in slightly different style, but then along with the minutes of meetings which are published three weeks after the policy decision). The projections are presented along with “confidence bands,” in a … Continue reading

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At the Fed: What did come next?

September 22 the Federal Reserve initiated “Operation Twist” where they announced that they would start restructuring its debt by buying up long bonds with the proceedings from short bond sales, with the aim of lowering the long-term yields. As I mentioned in my post on that occasion, the Fed and Ben Bernanke had then exhausted the three main ways of conducting unconventional monetary policy as defined by Bernanke himself in a paper from 2004: I. Shaping Interest-Rate Expectations; II. Altering the Composition of the Central Bank’s Balance Sheet;  III. Expanding the Size of the Central Bank’s Balance Sheet. In case nothing new would happen to the American economy, the obvious … Continue reading

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Come on Baby, Let’s Do the Twist!

After yesterday’s press release by the Fed, many commentators started talking about “Operation Twist” even though no such thing is mentioned in the release. Accompanying the press release on the Federal Reserve site, was, however, a document containing the term in parenthesis. Some could immediately be confused or even scared by this. Would this be yet an addition to the endless series of acronyms that has emerged during the financial crisis? Troubled and Worthless Interest-bearing Securities Task-force? Luckily not. It just reflects a return to the old days. And “twist” actually means what it says: “twist.”  In 1961, the Kennedy administration and the Fed engaged in an operation of selling … Continue reading

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Commitment in action: Federal Reserve’s interest-rate “path”

It is a big shame that today’s FOMC meeting is one of those not to be followed by a press conference and a Q&A with Ben Bernanke. The policy decision is one of the more spectacular in recent times. Not because the Fed decided to keep the target for the Federal Funds Rate within the 0–0.25% range, where it has been since December 2008. The big news, however, is that the non-move is accompanied by an explicit commitment to keep it there for the next two years (if current conditions continue). This is very specific compared to previous talk about keeping rates low for “an extended period” (which has been … Continue reading

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John Cochrane on QE2

I have previously mentioned John Cochrane on this blog as a good example of an economist who insists on using sound academic arguments in even the most heated debates. That this does not imply death by boredom, he shows in a recent commentary on quantitative easing at bloomberg.com : “Is QE2 a Savior, Inflator, or a Dud?: Business Class“. Ben Bernanke said the following about QE2 in March 2011: “Yields on 5- to 10-year nominal Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities … Continue reading

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“Hi Mom”: Ben Goes Inflation Targeting

I know. This is a VERY late post. I am going to write a few remarks about something that happened 2 1/2 weeks ago. Old news. Nevertheless, big events deserve a comment even after a while. In the April 27 video above, Federal Reserve chairman Ben Bernanke is seen in a press conference following the FOMC’s decision to keep the Fed funds rate unchanged within its 0-0.25% zone. What makes this of significance is that it, as I see it, marks the moment where the United States officially enters the group of inflation-targeting countries. He explicitly mentions two percent (or a “bit less”) as the average inflation rate consistent with … Continue reading

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